PayPal offering crypto services will go down as one of the digital asset industry’s biggest wins to date, even if it did take over seven years to arrive. Here’s how it all happened.
PayPal is a global e-commerce payments platform founded in 1998 by Peter Thiel, Luke Nosek and Max Levchin. Originally known as “Confinity Inc.,” the U.S.-based software service merged with dogecoin proponent Elon Musk’s online banking company “X.com” in 2000 and rebranded to “PayPal” a year later.
In 2002, the business was acquired by online marketplace giant eBay for $1.5 billion and became the default payment method for its 185 million users. Thirteen years later, PayPal was spun off from its parent company and went back to being a separate publicly traded company using the same PYPL ticker symbol it had prior to the eBay acquisition.
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To date, PayPal boasts over 377 million users worldwide and is the 54th largest company in the world, with a market capitalization of $282.58 billion. During Q4, 2020, the platform processed 3.47 billion transactions worth a combined value of $277 billion.
Commitment issues
PayPal first voiced interest in cryptocurrencies back in 2013 – four years after Satoshi Nakamoto released the Bitcoin white paper. The president of PayPal at the time, David Marcus, told Bloomberg in an interview he had been “spending a lot of time looking” at bitcoin and the company was “thinking about” adding it to “PayPal’s funding instrument.” However, nothing materialized from the discussions.
Marcus left PayPal several months later and joined Facebook to lead the Messenger product before getting selected in 2018 to drive the social media platform’s libra cryptocurrency project – now known as “diem.”
On Sept. 8, 2014, PayPal released a 60-second promotional video entitled “PayPal Voices” that included the line, “Our phone is our wallet. We can spend bitcoin with a tap, without a pocket.”
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The video immediately ignited discussion throughout the crypto community over whether the online payments behemoth was about to add support for bitcoin on its platform. PayPal had over 161.5 million users around the time the video was released, representing a huge opportunity for bitcoin to gain global mainstream traction if the integration was confirmed.
This was also short-lived as the clip was eventually replaced by a nearly identical video with the bitcoin line removed. “Our phone is our wallet. One touch to buy just about anything without sharing our credit card and banking details” was substituted in its place.
PayPal shows real interest in crypto
Toward the end of 2014, PayPal made it possible for online vendors to accept bitcoin payments via partnerships with Coinbase, BitPay and GoCoin. This was the first time PayPal had announced business relations with crypto-focused companies and marked its first major step toward embracing the crypto market. The price of bitcoin rallied in tandem with the news and printed a daily gain of 10.61%, from $404 to $447.
Despite the positive sentiment, Scott Ellison, the senior director of corporate strategy, was quick to manage expectations and reaffirmed the company was still tentatively assessing the crypto industry.
“We’re proceeding gradually, supporting bitcoin in some ways today and holding off on other ways until we see how things develop,” he said.
In 2016, PayPal appointed Xapo CEO and founder Wences Casares to the Board of Directors, where he sat on the company’s Compensation Committee. Xapo is a bitcoin wallet and cold storage provider registered in Gibraltar. In 2014, PayPal cofounder Max Levchin participated in Xapo’s $20 million Series A-1 funding round alongside Greylock Partners, Index Ventures, former Yahoo CEO Jerry Yang and others. After closing the round, Xapo overtook BitPay as the highest-funded crypto startup.
The global payments giant makes waves
PayPal continued to sniff around the crypto space, filing a patent application in 2018 with the United States Patent and Trademark Office (USPTO) for an “Expedited Virtual Currency Transaction System.” The proposed system would reduce transaction times by creating secondary wallets that exchange private keys tied to a predefined amount of a particular cryptocurrency. The document states:
“The systems and methods of the present disclosure practically eliminate the amount of time the payee must wait to be sure they will receive a virtual currency payment … by transferring to the payee private keys that are included in virtual currency wallets that are associated with predefined amounts of virtual currency that equal a payment amount identified in the virtual currency transaction.”
On Dec. 14, 2018, Coinbase announced in a blog post that it had upgraded its PayPal integrated service to allow U.S. customers to withdraw fiat currency from Coinbase directly into their PayPal accounts free of charge. Two months after it launched, the service was extended to users in 32 European countries.
In April of the following year, PayPal made its first investment in the crypto space, participating in Cambridge Blockchain’s Series A funding round for an undisclosed amount.
PayPal further waded into the cryptocurrency space by joining the Libra Association in June 2019 along with Uber, Mastercard, eBay, Stripe and several other household names.
“At PayPal, we believe in democratizing participation in the digital economy for people from all walks of life and businesses of all sizes,” said Dan Schulman, CEO of PayPal, at the time.
“PayPal is pleased to join other leading technology and financial services organizations to form Libra, with the goal of exploring a new, global digital currency, built on blockchain technology.”
Four months later, however, PayPal became the first company to withdraw its support after the Facebook-led project attracted intense scrutiny from the Federal Reserve, the United States Congress, the European Union and other global regulators.
PayPal officially steps into crypto
In June 2020, well-placed sources told CoinDesk that PayPal was finally about to allow users to buy and sell select cryptocurrencies directly through the platform, seven years after it was first mentioned by David Marcus. PayPal declined to confirm or deny the report, but weeks later a letter addressed to the European Commission was published showing PayPal had told the international regulator it was taking “unilateral and tangible steps” in the crypto industry.
Not long after, CoinDesk broke the story that Paxos had been selected to provide the back-end infrastructure for PayPal’s imminent crypto service.
On Oct. 21, 2020, PayPal made public its entrance into the crypto market with its new digital asset service.
According to its FAQs:
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The new service is only available to U.S. users, but there are plans to extend the service to U.K. customers between March and April 2021.
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Only bitcoin, bitcoin cash, ethereum and litecoin are available to be bought and sold on the platform.
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Critically, crypto assets cannot be withdrawn off the platform or sent to other wallet addresses.
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Users have full ownership over the cryptocurrencies stored in their accounts. However, PayPal said it will not provide customers with private keys, the encryption keys required to access a crypto wallet and the funds inside. This mirrors the practices of centralized crypto exchanges whereby the platform holds the private keys, not the customer.
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Crypto assets stored on the platform cannot be used to pay merchants or buy goods.
The new crypto service has been so successful that PayPal has already increased weekly purchase limits two times from $10,000 to $15,000 and now $20,000 due to surging demand. PayPal also removed the whitelist so that all U.S. customers could access the service. This is a feature that restricts the use of certain services based on location and helps a company to manage the release of new products.
In its Q4 2020 investor update, PayPal stated customers who purchased crypto using the service have been logging on twice as many times compared to before. This could be attributed to users logging in frequently to monitor their new crypto investments or simply because of the global pandemic and people being stuck inside their homes with little to do.
By December, a Mizuho Securities report found that over 20% of surveyed PayPal users had already traded bitcoin on the platform’s app.
Most recently, PayPal has confirmed it’s buying Curv, an institutional grade digital asset custody solution. The acquisition is expected to be completed during the first half of 2021.
“The acquisition of Curv is part of our effort to invest in the talent and technology to realize our vision for a more inclusive financial system,” said Jose Fernandez da Ponte, vice president of blockchain, crypto and digital currencies at PayPal.
What’s next?
Over the course of 2021, PayPal will allow cryptocurrencies held on the platform to be used as a funding source to pay over 29 million onboarded merchants worldwide and to purchase goods.
The company has also expressed plans to integrate digital asset services on its mobile payment app subsidiary, Venmo, during the first half of the year.
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